Flavor Buds
E-liquids can propel electronic cigarettes further, but first hurdles must be overcome.
What's in the vapor is part of electronic cigarettes' allure, as well as a controversy for adult smokers.
As distribution of electronic cigarettes grows through mass-market retailers, e-liquids and their flavor ranges also will grow to create excitement and spark greater retail sales, say suppliers.
Food retailers, familiar with the sales thrust of trendy flavors in the beverage aisle, or the latest craft brews, can relate to the merchandising opportunities that might arise with e-cigarette flavors.
However, suppliers say they aren't there yet. Don't expect to see displays of colorful bottles of nicotine liquid flavors on mass-market retailers' shelves any time soon. Distribution in mass channels is still evolving, although at a fast rate.
Category dollar volume is projected to double, from an estimated $500 million to $1 billion in the next few years, according to research analysts.
Jason Healy, founder and president of Charlotte, N.C.-based Blu eCigs, which is owned by Lorillard Tobacco Co., calls the flavor process "the vineyard approach."
"If you are going to give the consumer a genuine experience, then flavor and taste play a huge role," Healy says. "We believe, with close attention to detail and the 'vineyard' approach that Johnson Creek [Blu's exclusive U.S. e-smoke supplier] and Blu eCigs take towards the juice, that we have gained consumer trust and, in turn, have had tremendous success."
What's in the Juice?
E-liquid is made from a basic solution of propylene glycol, or vegetable glycerin; nicotine extracted from tobacco leaves, formulated in various potencies; and natural and artificial flavorings. The flavorings are added to produce an expansive range of fruit, chocolate, nut, herbal and other flavors.
Concern over e-liquids stems from reports of toxic ingredients found in some liquids.
"When nicotine is extracted from the tobacco plant, a variety of carcinogenic chemicals may be created in the process, including diethylene glycol and nitrosamines," notes Adries Verleur, co-founder and CEO of Miami-based VMR Products, which makes V2 Cigs.
In 2009, the FDA randomly tested a variety of electronic cigarette liquids and found that some of them contained diethylene glycol, considered a poison. Major electronic cigarette suppliers have been proactive in stepping up their quality-control procedures, pending government regulations.
"V2 Cigs batch-tests all of its liquids, before they go into the hands of consumers, to be free of all the carcinogenic byproducts of nicotine extraction, as well as free of lead and other harmful chemicals. These batch reports are available for free to the public on our website [www.v2cigs.com]," Verleur says. Each V2 Cigs product with nicotine liquid has a unique batch code printed on the packaging. Customers can type in that number on the V2 website and pull up their batch safety report. Other suppliers say their e-liquid ingredients are USP-grade, FDA-approved and safe.
Brian Skinner, product developer for Cig2o, manufactured and imported by Spark Industries in Carmarillo, Calif., and distributed by Moorpark, Calif.-based Kretek International Inc., lists a number of certificates supporting Cig2o's e-liquid. "Cig2o is partnered with an e-liquid factory whose owner is a chemist from the pharmaceutical industry, and operates the factory at a food-grade standard, and has GMP, ISO, Skyte, TUV and SGS certificates," Skinner explains. "Our main ingredients are FDA-approved, and Dow Chemical supplies them. The flavorings used are food-grade and come from Europe."
To ensure consistent and exciting new flavors for the U.S. market, Skinner notes, a mixologist from California creates the flavors.
"The nicotine is cold-pressed from natural tobacco leaf, and is 98 percent pure, which is considered pharmaceutical-grade nicotine," he says. To ensure quality and tracking of the e-liquid, all steps in the process — from purchasing raw materials all the way to the store shelves — have batch coding and related lot numbering.
Trustworthiness Rules
"At the end of the day, the reason a customer comes back is because of the flavor, taste and trustworthiness of the company," says Christian Berkey, founder and CEO of Johnson Creek Enterprises LLC in Hartland, Wis.
Johnson Creek claims it is the first U.S. supplier to make its juice from scratch, with all ingredients sourced from within the United States.
That could be a selling point, considering the quality-control issues surrounding imported e-juice. Many of the e-liquids come from China, whose track record in product safety has been less than stellar.
Flavor also plays an important role in branding.
"The flavor is really what separates regular cigarettes, and to that, we have our own flavor profile," says Kevin Frija, CEO of Fort Lauderdale, Fla.-based Vapor Corp., a publicly traded company that sells disposable Krave e-cigarettes in mass-market channels. "The flavor is going to be something that's going to be very hard to duplicate exactly by other companies," Frija noted late last year during a conference call for Wells Fargo Securities, which follows the e-cigarette industry.
While flavor and consistency of e-liquids are at the heart of electronic cigarettes' success, Verleur of VMR believes quality and safety remain hurdles. "At this time, due to a lack of regulation and consumer demand, I would not say [that e-liquids drive success of product]," Verleur says. "As consumers become more educated and the government enacts regulations on the electronic cigarette industry, it will become mandatory for every company to ensure quality e-liquid production."
Federal Oversight
As of this writing, the electronic cigarette industry isn't regulated by the U.S. Food and Drug Administration (FDA), but the industry expects proposed federal regulations to advance within the year.
E-liquids and their ingredients may then come under scrutiny by the agency because of previous reports of low quality and toxicity of trace substances in some e-juices. The pending regulations also could look at the marketing of e-liquid flavors and their potential to appeal to youth.
In 2009, federal law under the Family Smoking Prevention and Tobacco Control Act (FSPTCA) banned fruit- and candy-flavored cigarettes and little cigars after studies showed such flavors are attractive to minors.
It remains to be seen whether e-liquids would be subject to such a ban. "Although federal law does not regulate flavored non-cigarette tobacco products, it does not prevent state and local governments from regulating the sale of these products or their component parts," says the Tobacco Control Legal Consortium, a legal network on tobacco control policy, in a report on e-cigarettes.
Some suppliers say they're more worried about restrictive state legislation than what the feds might do.
Johnson Creek's Berkey is concerned that electronic cigarettes could be unfairly taxed. "We don't want to see e-cigarettes taxed the same way traditional cigarettes are taxed," he says. "That would be vastly inaccurate and unfair because cigarettes are taxed heavily to recoup health care costs. Electronic cigarettes haven't caused one dollar of health care to be spent." Berkey believes federal regulations will stop suspect e-liquids from coming in from other countries.
Skinner of Spark Industries, on the other hand, doesn't want "unreasonable regulations" that make sourcing and manufacturing e-liquids difficult. "That could make manufacturing e-cigarettes problematic and drive the price up to the point where it's economically difficult for people to buy the product," he says. Skinner also is concerned that any proposed federal regulations will limit nicotine levels for smokers: "Both of these issues wind up hurting the customer."
Most major players in the industry have been proactive on quality control by following good manufacturing (GMS) and ISO standards. While there's no requirement to list e-liquid ingredients on their products, many suppliers do.
Johnson Creek claims it pioneered the majority of the safety protocols currently in place. "The safety and quality control measures we introduced include child-resistant safety caps, shrink bands, lot codes, and labels that include ingredients and appropriate warnings," says Heidi Braun, Johnson Creek's COO. "We also carry this drive for safety and quality control into the expectations we set for our suppliers."
"At the end of the day, the reason a customer comes back is because of the flavor, taste and trustworthiness of the company."
—Christian Berkey, Johnson Creek Enterprises